So far as we must continue spending, there’s equally need to no get caught unawares irrespective of our budget, Life is practically full of unexpected surprises, Your cars could get damaged requiring urgent repairs, or you might have to fund a medical bill for you or your family.
There could even be a job loss that could throw one into a financial chaos they aren’t really ready to face. All these challenges are reasons why you should have emergency funds that could be of help in your time of emergency.
Emergency funds act as a potential safety net for us when we encounter unplanned expenses that could plunge one into debt. The question now is, When you are living from one paycheck to the other managing a tight budget, is it still possible for you to build an emergency fund?
The answer is yes! it’s very much possible that you can build an emergency fund irrespective of the tight budget you are on, and in this article, we’ll guide you through some of the practical steps that will definitely help you build an emergency fund even when money is tight for you.
What is an Emergency Fund, and Why Do You Need One?
An Emergency fund is practically a savings account that you set aside mainly for unexpected expenses that you never budgeted for. Unlike you saving to acquire a property or going on vacation, Emergency fund is strictly for emergencies like
- Medical emergencies
- Car or home repairs
- Job loss
- Urgent travel Emergency.
According to financial experts, it’s recommended that you have at least three to six months worth of your living expenses in your emergency funds.
Although this might sound like a difficult goal to achieve, but you can start very small, if you could save up to $100, it can make a whole lot of difference during an emergency.
1. Set a Realistic Goal
For you to set up an emergency fund account, you need to be able to set a goal that is very realistic. you should start by deciding on how much you want to save.
Although the main goal is to save several months worth of expenses, for a start, you really need to focus more on small milestones that you can easily achieve.
For example:
- First milestone: You can decide to save $500 for basic emergencies. you are better than someone who saved nothing for emergency
- Second milestone: You can start by saving one month’s worth of living expenses.
- Final goal: Finally you can easily save 3–6 months’ worth of your living expenses.
If you are able to break your savings goals into small and easy to achieve steps, you’ll be very motivated to keep saving once you smash each of the goals.
2.Assess Your Current Budget
Your current budget will go a long way to deciding how much you can really save. For you to save money, you will need to know where that money is going. you can easily start by creating a simple budget
- Keep track your income: You will have to write down how much money you make each month.
- List your expenses: trying breaking down your expenses into some categories, such as rent/mortgage, utilities, groceries, transportation etc.
- Find your savings potential: Look for areas where you can cut back, even by a little and save more.
For example:
- If you spend $50 a month on coffee, could you cut that to $25?
- If you’re subscribed to multiple streaming services, could you pause one for a few months?
The deal here is simply to find out small adjustments you can make to free money
3.You should Automate Your Savings
One of the easiest ways you can save for emergencies is to make your savings process automatic. it doesn’t matter if all you can afford to save is $5 or $10 a week, just make sure you set it up in an automatic from your normal account to your savings account.
Why automation works is because:
- Consistency: Money goes into your emergency fund regularly, which means you save without really thinking about it.
- Out of sight, out of mind: If you don’t see the money in your main account, you’re less likely to spend it.
There are so many banks and apps out there that you can use to make your savings more automatic and for free too, you can start with the amount that is cool with you, with time you can increase the amount too.
Cut Unnecessary Expenses
Most of the time we spend so much on things we don’t need even when we’re on a tight budget.
When you are on a tight budget, every dollar counts for you, you can look for a way to reduce how much you are spending so that it’ll be easier for you to contribute more towards your emergency fund account.
Some Ideas used to cut costs:
- Cancel unused subscriptions: Do you really need all those streaming services, gym memberships, or magazine subscriptions? if no is the answer then you have absolutely no need not to cancel it.
- Cook at home: Eating out is very expensive. If you are preparing your meals at home, I bet it can save hundreds of dollars every month.
- Shop smart: You can use coupons, take advantage of cashback apps, or even buy generic brands so as to save money on groceries and other essentials.
- Cut down on utilities: There are some actions that you can take that could cut costs and help you save more. Simple things like turning off lights, unplugging devices, and adjusting your thermostat will definitely lower your utility bills.
Final Thoughts
Building an emergency fund might not but it is very much possible and you too can do it. An emergency fund should only be used for true emergencies. Before dipping your hands into it, ask yourself: Is this expense urgent and unavoidable?Could I handle this cost without using my emergency fund? Answers to these questions will decide if you truly have the capacity to save an emergency fund.